Vertical Markets

Calls for Barclays inquiry

by msecadm4921

The Serious Fraud Office decided formally to accept the LIBOR scandal for investigation. Briefly, the SFO is a government department responsible for investigating and prosecuting serious and complex fraud. 

 

The Financial Services Authority (FSA) has already fined Barclays Bank Plc (Barclays) £59.5m for misconduct relating to the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR). This is the largest fine ever imposed by the FSA. Barclays’ breaches of the FSA’s requirements encompassed a number of issues, involved a significant number of employees and occurred over a number of years.  Barclays’ misconduct included:

 

making submissions which formed part of the LIBOR and EURIBOR setting process that took into account requests from Barclays’ interest rate derivatives traders.  These traders were motivated by profit and sought to benefit Barclays’ trading positions;

seeking to influence the EURIBOR submissions of other banks contributing to the rate setting process; and

reducing its LIBOR submissions during the financial crisis as a result of senior management’s concerns over negative media comment.

In addition, Barclays failed to have adequate systems and controls in place relating to its LIBOR and EURIBOR submissions processes until June 2010 and failed to review its systems and controls at a number of appropriate points.

 

Barclays also failed to deal with issues relating to its LIBOR submissions when these were escalated to Barclays’ Investment Banking compliance function in 2007 and 2008. 

 

Tracey McDermott, acting director of enforcement and financial crime, said: “Barclays’ misconduct was serious, widespread and extended over a number of years.  The integrity of benchmark reference rates such as LIBOR and EURIBOR is of fundamental importance to both UK and international financial markets.  Firms making submissions must not use those submissions as tools to promote their own interests.”

 

“Making submissions to try to benefit trading positions is wholly unacceptable.  This was possible because Barclays failed to ensure it had proper controls in place.  Barclays’ behaviour threatened the integrity of the rates with the risk of serious harm to other market participants.”

 

“The FSA continues to pursue a number of other significant cross-border investigations in this area and the action we have taken against Barclays should leave firms in no doubt about the serious consequences of this type of failure.” 

 

The BBA is making a review of the way LIBOR is set and will publish its findings shortly.  The FSA, with the other tripartite authorities, is working to support market-led reviews of existing arrangements, with the goal of ensuring such arrangements continue to command the confidence of all stakeholders.  Barclays co-operated fully during the FSA’s investigation and agreed to settle at an early stage.  The firm qualified for a 30% discount under the FSA’s settlement discount scheme.  Without the discount the fine would have been £85m.

The abuse by Barclays’ personnel of their positions of trust for the sake of corporate and indirect private gain was ethically corrupt behaviour and warrants an independent investigation. So says the anti-corruption presure group Transparency International UK. Chandu Krishnan, Executive Director of Transparency International UK said “This is a shocking failure by a major UK financial institution to conduct its business according to the ethical standards its leadership publicly committed to uphold last year.  The company’s board and senior management should be held accountable.   

 

“It is also disturbing that other banks in the UK and abroad have been implicated in such behaviour. This will further undermine public confidence in the transparency and integrity of banks.  It exposes weaknesses in corporate governance and the need for reforms that will increase transparency and accountability as well as reduce the incentives for irresponsible, corrupt behaviour.  There should be criminal sanctions for individuals who have committed offences and reforms are also needed to allow criminal corporate prosecution of this form of economic crime in the UK”. 

 

“In order to restore confidence, Barclays should commission an independent inquiry into what went wrong, why it went wrong, who was responsible, and what steps the company must take to improve its internal controls and corporate governance.  The results of this inquiry should be made public. The Treasury’s proposed independent inquiry into how Libor operates should help to expose wider systemic  failures and how they can be remedied.”

 

Labour Party leader Ed Milliband admitted questions there were about the last Labour government –  ‘we didn’t get regulation right, just like the Conservative opposition was wrong to be saying our regulation was too tough’. He said: “So, of course any inquiry will have to look at those issues but also, most importantly, look at the future and how we can change things for the future. I think the last thing the public want is a sense that the establishment is going to cover this up, and try and sweep it under the carpet. Let’s have that full judge-led open inquiry which can get to the bottom of what happened.” 

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